PAM200 – Section 8
Problem 9.9.
The firm’s
ANSC
(average non sunk cost) curve is given by 32/
Q
+ 2
Q
. To find
the shutdown price, we find the minimum level of
ANSC
. This occurs at the
quantity at which
ANSC
equals
MC (Marginal Cost)
, or
32/
Q
+ 2
Q
= 4
Q
.
Solving for
Q
yields
Q
= 4, and substituting this into the expression for
ANSC
tells us that the minimum level of
ANSC
is equal to 32/4 + 2(4) = $8. At prices
below $8, a firm’s supply is 0. At prices above $8, a firm produces a quantity at
which
P = SMC(short run Marginal Cost)
:
P
= 4
Q
, or
Q
=
P
/4. Thus, the short
run supply curve for a firm is:
≥
<
=
8
if
4
.
8
if
0
)
(
P
P
P
P
s
Since there are 60 identical producers, each with this supply curve, the shortrun
market supply curve
S
(
P
) is 60 times
s
(
P
), or:
≥
<
=
8
if
15
.
8
if
0
)
(
P
P
P
P
S
To find the equilibrium price, we equate market supply to market demand and
solve for
P
: 15
P
= 400 – 5
P
, or
P
= 20.
Problem 9.22.
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 Fall '07
 EVANS,T.
 Supply And Demand, 2W, 2 w, 10 l, 100 W, 10 W

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